Fonecomp Ltd v Revenue & Customs Commissioners (2013)

Summary

The First-tier Tribunal had not erred in law in applying the principle in Kittel v Belgium (C-439/04) [2008] S.T.C. 1537, as interpreted by the Court of Appeal in Mobilx Ltd (In Administration) v Revenue and Customs Commissioners [2010] EWCA Civ 517, [2010] S.T.C. 1436, when considering whether a trader, who was claiming input VAT, had in some way been involved in or connected with VAT fraud carried out by another person.

Facts

The appellant company (F) appealed against the First-tier Tribunal's decision ([2012] UKFTT 102 (TC)) dismissing its appeal against a decision of the respondent Revenue to deny input tax credit in respect of its purchase of mobile phones in two transactions.

The Revenue had refused F's claim to input tax on the basis that the purchases were connected to the fraudulent evasion of VAT by another company (S). The Revenue claimed that S had defaulted in its VAT payment in respect of certain transactions, and that F's purchases were connected with S's default through a third company (K), which had acted as a contra trader. The Revenue contended that F was, through K, in the position of the third trader and that the activities of K provided the connection between F's purchases and S's default, such that F either knew, or should have known, of its connection to VAT fraud. The tribunal found that such a connection to VAT fraud had been made out and that F should have known that its purchases were connected with the fraudulent evasion of VAT.

F submitted that (1) the tribunal had erred in its analysis of European Union law and the case law of the Court of Justice of the European Union covering the right of a person who purchased goods and then sold them on in the course of his trade, to claim back the VAT paid as input tax; (2) the law was so unclear that a reference should be made under the TFEU art.267; (3) the tribunal's conclusions were irrational.

Held

(1) In Kittel v Belgium (C-439/04) [2008] S.T.C. 1537, the CJEU laid down the relevant approach where it was alleged that a trader who was claiming input VAT had in some way been involved in or connected with VAT fraud carried out by another person. That approach represented a correct interpretation of the applicable EU law. It was restated and affirmed in Mahageben kft v Nemzeti Ado-es Vamhivatal Del-dunantuli Regionalis Ado Foigazgatosaga (C-80/11) [2012] S.T.C. 1934, Toth v Nemzeti Ado-es Vamhivatal Eszak-magyarorszagi Regionalis Ado Foigazgatosaga (C-324/11) [2013] S.T.C. 185, Bonik EOOD v Direktor na Direktsia Obzhalvane i upravlenie na izpalnenieto - Varna pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite (C-285/11) [2013] S.T.C. 773 and LVK - 56 EOOD v Direktor na Direktsia 'Obzhalvane i upravlenie na izpalnenieto' (C-643/11) , and the tribunal had correctly applied that approach to the facts of the instant case, Mahageben, Toth, Bonik and LVK applied. A wider interpretation of the Kittel principle, by reference to connection to VAT fraud occurring in the relevant supply chain prior to or subsequent to the transaction in relation to which input tax was claimed, had been confirmed in Bonik and LVK, and the Court of Appeal in Mobilx Ltd (In Administration) v Revenue and Customs Commissioners [2010] EWCA Civ 517, [2010] S.T.C. 1436 had authoritatively interpreted the Kittel principle as involving that wider approach. Thus, in the instant case, the tribunal had applied the correct approach under EU law by inquiring whether the deals in question were connected with VAT fraud occurring before or after the deals were done. Furthermore, the rationale and explanation given in Kittel applied with equal force in a contra-trading situation as in relation to a simple type of case involving a single chain of supply, and the principle of proportionality was respected in the same way in a contra-trading case as in a case involving a single chain of supply, Livewire Telecom Ltd v Revenue and Customs Commissioners [2009] EWHC 15 (Ch), [2009] S.T.C. 643 and Mobilx applied. (see paras 19-22, 24-26 of judgment). (2) The Court of Appeal in Mobilx read and interpreted the judgment in Kittel with meticulous care. There was no lack of clarity in the position. Accordingly, there was no proper basis on which it would be right to contemplate making a reference to test whether the Court of Appeal was correct in its interpretation. Moreover the judgment in Mahageben did not create any doubt or uncertainty about the interpretation of the judgment in Kittel where there was none before. The position regarding the proper scope of the Kittel principle was acte clair against F, and its request for a reference to be made would be dismissed, Mobilx, Mahageben and Kittel applied (paras 28-30). (3) The consistent theme of the tribunal in its decision was that the facts known to F at the time it carried out its own purchases were such that it ought reasonably to have concluded that what mattered was not the actual supply of particular goods, but that something, or indeed anything, passed through the chain of transactions, which would indicate a connection between F's purchases and VAT fraud. That was a conclusion that the tribunal was entitled to reach. Taking all the objective factors known to F into account, the tribunal was entitled to conclude that the transactions could not be explained by reference to ordinary commercial trading, but that the only reasonable explanation was that F's purchases were connected with VAT fraud. Accordingly, the tribunal was entitled to find that F should have known that its purchases were connected with fraudulent evasion of VAT at the time it made them (paras 68-69).